Ch2-1 Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis Michael A. Hitt R. Duane Ireland Robert E. Hoskisson ©2000 South-Western College Publishing Ch2-2 The Strategic The Strategic Management Management Process Process The Strategic The Strategic Management Management Process Process Chapter 3 Internal Environment Chapter 2 External Environment Strategic Intent Strategic Mission Strategy Formulation Strategy Implementation Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Strategy Chapter 8 International Strategy Chapter 9 Cooperative Strategies Chapter 7 Acquisitions & Restructuring Chapter 10 Corporate Governance Chapter 11 Structure & Control Chapter 12 Strategic Leadership Chapter 13 Entrepreneurship & Innovation Strategic Inputs Feedback Strategic Outcomes Strategic Strategic Actions Actions Strategic Competitiveness Above Average Returns Ch2-3 Political/ Legal Economic Technological Global Demographic Sociocultural Competitive Competitive Environment Environment Industry Environment Components of the General Environment Ch2-4 Components of the General Environment Ch2-5 External Environmental Analysis The external environmental analysis process should be The external environmental analysis process should be conducted on a continuous basis. This process includes conducted on a continuous basis. This process includes four activities: four activities: Scanning Scanning Monitoring Monitoring Forecasting Forecasting Assessing Assessing Identifying early signals of environmental Identifying early signals of environmental changes and trends changes and trends Detecting meaning through ongoing observations Detecting meaning through ongoing observations of environmental changes and trends of environmental changes and trends Developing projections of anticipated outcomes Developing projections of anticipated outcomes based on monitored changes and trends based on monitored changes and trends Determining the timing and importance of Determining the timing and importance of environmental changes and trends for firms' environmental changes and trends for firms' strategies and their management strategies and their management Ch2-6 Top 10 U.S. States Moving Top 10 U.S. States Moving Toward Digital Economy Toward Digital Economy States in the top 10 of those that are trying to transform themselves to the realities and needs of a digital economy may experience an influx of high-tech companies and skilled workers as well as increases in tax revenues External Environmental Analysis Ch2-7 Threat of New Entrants Threat of New Entrants Porter’s Five Forces Model of Competition Ch2-8 Threat of New Entrants Barriers to Entry Expected Retaliation Expected Retaliation Government Policy Government Policy Economies of Scale Economies of Scale Product Differentiation Product Differentiation Capital Requirements Capital Requirements Switching Costs Switching Costs Access to Distribution Channels Access to Distribution Channels Cost Disadvantages Independent Cost Disadvantages Independent of Scale of Scale Ch2-9 Bargaining Power of Suppliers Threat of New Entrants Threat of New Entrants Porter’s Five Forces Model of Competition Ch2-10 Bargaining Power of Suppliers Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Suppliers are likely to be powerful if: Suppliers are likely to be powerful if: Supplier industry is dominated by a Supplier industry is dominated by a few firms few firms Suppliers’ products have few substitutes Suppliers’ products have few substitutes Buyer is not an important customer to Buyer is not an important customer to supplier supplier Suppliers’ product is an important Suppliers’ product is an important input to buyers’ product input to buyers’ product Suppliers’ products are differentiated Suppliers’ products are differentiated Suppliers’ products have high Suppliers’ products have high switching costs switching costs Supplier poses credible threat of Supplier poses credible threat of forward integration forward integration [...]... Entry Barriers and Exit Barriers on Industry Profits Exit Barriers Low Low High Low, Stable Returns Low, Risky Returns High, Stable Returns High, Risky Returns Entry Barriers High Ch2-23 Competitor Analysis The follow-up to Industry Analysis is effective analysis of a firm’s Competitors Industry Environment Competitive Environment Ch2-24 Competitor Analysis Assumptions What assumptions do our competitors... this strategy support changes in the competitive structure? What is the competitor doing? What can the competitor do? Ch2-27 Competitor Analysis Future Objectives What does the competitor believe about itself and the industry? How do our goals compare to our Where Current be competitors’ goals? Strategy will emphasis placed in the future? How are we currently What is the attitude competing? Assumptions... we assume the future support changes in the will be volatile? competition structure? What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions? Ch2-28 Competitor Analysis Future Objectives What are the competitor s capabilities? How do our goals compare to our Where Current be competitors’ goals? Strategy will emphasis placed in the future?... competition? Ch2-25 Competitor Analysis Future Objectives What Drives the competitor? How do our goals compare to our Where will emphasis competitors’ goals? be placed in the future? What is the attitude toward risk? Ch2-26 Competitor Analysis Future Objectives How do our goals compare to our Where Current be competitors’ goals?Strategy will emphasis placed in the future? currently How are we What is the attitude... What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future supportwill be volatile? changes in the competition structure? What assumptions do our competitors hold about the Capabilities industry and themselves? What are my competitors’ Are we operating under strengths and weaknesses? a status quo? How do our capabilities compare to our competitors? Ch2-29 Competitor. .. What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Response What will our competitors do in the future? Where do we have a competitive advantage?... Competitor Analysis Response Future Objectives How do our goals compare to our Where Current be competitors’ goals? Strategy will emphasis placed in the future? How are we currently What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future supportwill be volatile? changes in the competition structure? What assumptions do our competitors hold about the Capabilities industry. .. changes in the competition structure? What assumptions do our competitors hold about the Capabilities industry and themselves? What are my competitors’ Are we operating under strengths and weaknesses? a status quo? How do our capabilities compare to our competitors? What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?... Barriers High Ch2-19 Effects of Entry Barriers and Exit Barriers on Industry Profits Exit Barriers Low Low High Low, Stable Returns Entry Barriers High Ch2-20 Effects of Entry Barriers and Exit Barriers on Industry Profits Exit Barriers Low Low High Low, Stable Returns Entry Barriers High High, Stable Returns Ch2-21 Effects of Entry Barriers and Exit Barriers on Industry Profits Exit Barriers Low Low High... Existing Competitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service Making new product introductions Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, . Average Returns Ch2-3 Political/ Legal Economic Technological Global Demographic Sociocultural Competitive Competitive Environment Environment Industry Environment Components of the General Environment Ch2-4 Components of the General Environment Ch2-5 External Environmental Analysis The external environmental. Ch2-1 Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis Michael A. Hitt R. Duane Ireland Robert E. Hoskisson ©2000 South-Western. changes and trends based on monitored changes and trends Determining the timing and importance of Determining the timing and importance of environmental changes and trends for firms' environmental